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Transcript of China’s Industrial Capabilities and Trade · PDF fileChina’s Industrial...
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China’s Industrial Capabilities and Trade
Loren BrandtThomas Rawski
June 16, 2005
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Key Facts: China, 2003
Population: 1.3 billion (1st)GNP: $US 1.4 trillion (3rd)Foreign Trade: $US 850.1 (3rd)GNP Growth: 1980-2003
Official: 8.3%Unofficial: 6.3-6.8
Per capita GNP: $1100 (non-PPP adj)
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Key Question:
How did China get to be the 3rd largest trading country?
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Basic Message1. The rapid growth of China’s foreign trade sector is the consequence of rising mfg
capabilities, productivity growth and low labor costs
2. First two are direct pdt of domestic and foreign sector reforms that have increased competition and facilitated the transfer of foreign technology and managerial/org. know-how
3. Process has integrated the Chinese economy to an unprecedented degree into the inteconomy for a country of its size
1. China has become an integral part of int supply chains2. Major importer of intermediate and capital goods3. Major importer of raw materials
4. Process has similarities with that we have seen in other Asian economies
5. Regional trade balances tied to FDI flows
5. Ongoing Investments in mfg capabilities portend continued export expansion and movement up the value-added ladder in mfg
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Foreign Trade reforms
• Setting up of SEZs and EDTZ that encouraged FDI (beg. 1980s)
• Sharp reductions in tariffs and NTBs• Tariff rev as % of imports fell from 16% to
2.5% (Branstetter and Lardy, 2005)• Expansion of # of firms with direct trading
rights• Complementary domestic reforms• Acceleration of both with accession to WTO
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CHINA'S EXTERNAL TRADE: Exports, Imports & Balance, 1978-2004100 Million U.S. Dollars
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Balance: X-MSource: World Trade Data.031205.xls
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Share of World Trade (%)
1.82.42.11.71.31.0Taiwan
2.42.52.51.91.51.0Korea
4.46.57.57.57.56.6Japan
5.63.62.71.61.80.9China
200320001995199019851980
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Trends in China’s Trade Ratio
70.113650.09564.62004
60.411660.37048.42003
44.58825.43927.32000
30.01854.8556.01990
12.6451.857.01980
12.167.96.51952
Trade RatioGDP(bn RMB)
Total Trade(bn RMB)
Year
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Asian Trade Spurts: Evolution of World Trade Over 25 Years
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Years Since Start of Spurt
ChinaTaiwanKoreaJapan
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Linking FDI and Trade Flows
Marked regional component to pattern of China’s trade surplus/deficit
Deficit with much of East AsiaSurplus with US
FDI flows predominantly from Asia
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China’s Trade by Region ($US billion)
60.038.398.321.019.140.1-2.48.05.6NorthAmerica
18.469.788.07.225.833.0-3.510.67.1Europe
65.211.176.332.06.738.712.414.226.6HK
-90.2236.7146.5-18.078.0060.02.814.617.4Asia (exc. HK)
25.5412.8438.343.6140.2183.88.853.362.1Totals
X-MImportsExportsX-MImports ExportsX-MImportsExports
200319981990
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Annual FDI Inflows to Asian Economies, 1970-2003 (Million U.S. Dollars)
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Japan
China
India
Korea
Taiwan
Source: UNCTAD FDI Inflows.031305
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Origins of FDI to China
Year 1990 1994 1998 2003
Totals: 3.48 33.94 45.46 53.5
Source:
Asia:
31.33 34.1 Hong Kong 1.91 19.82 18.5 17.7 Japan 0.5 2.09 3.4 5.05 Korea 0.23 1.8 4.49 Singapore 0.05 0.73 3.4 2.06 Taiwan 0.34 2.91 3.38
Europe: 4.31 4.27
Germany 0.02 0.26 0.74 0.86 UK 0.01 0.69 1.17 0.72 Netherlands 0.02 0.11 0.72 0.73
North America
4.33 5.16 US 0.46 2.49 3.89 4.2 Canada 0.41 0.22 0.32 0.56
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Exports and Imports of Foreign Invested Enterprises
Year Total Exports
FIE Exports
Percent of Total
Total Imports
FIE Imports
Percent of Total
1985 27.4 0.3 1.09 42.3 2.1 4.961990 62.1 7.8 12.56 53.4 12.3 23.031995 148.8 46.9 31.52 132.1 62.9 47.621996 151.1 61.5 40.7 138.8 75.6 54.471997 182.8 74.9 40.97 142.4 77.7 54.561998 183.8 81 44.07 140.2 76.7 54.711999 194.9 88.6 45.46 165.7 85.9 51.842000 249.2 119.4 47.91 225.1 117.3 52.112001 266.1 133.2 50.06 243.6 125.8 51.642002 325.6 170 52.21 295.2 160.2 54.272003 438.2 240.3 54.84 403.4 231.9 57.49
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Leading Sectors Receiving FDIManufacturing Sector Percent of Total
Industry FDI
Plastics 2.18Metal products 2.73Smelting-Pressing of Ferrous Metals 3.15Food products 3.24Electric equipment and machinery 3.35Paper products 3.37Textiles 3.52Beverages 4.30Garments 5.07Ordinary machinery 5.56Non-metal mineral products 6.14Transportation equipment 6.50Medical and pharmaceutical 7.03Electronics and Telecommunications 7.88Instruments and meters 10.64
Average
4.98
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Percentage of Exports by Foreign Invested Enterprises
Percent of Total
Industry Exports
Export Share of FIE
Of which: Overseas Chinese Firms
Metal Products 2.18 84.80 23.11Smelting-Pressing Non-ferrous Metals 2.41 49.13 16.02 Food Manufacturing 2.42 60.42 38.50 Cultural, Educational and Sporting products 2.51 74.92 94.27 Non-metal mineral products 2.74 76.48 19.29 Transportation Equipment 2.78 64.03 10.23 Electronic Equipment and Machinery 2.79 81.84 19.86 Medical and Pharmaceutical 3.42 56.34 16.17 Other manufacturing 4.46 71.03 90.40 Ordinary Machinery 4.66 58.13 32.38 Leather products 5.00 75.57 84.95 Textiles Industry 5.54 50.41 53.88 Garments 10.63 61.40 74.80 Instruments and Meters 13.11 93.83 32.45 Electronics and Telecommunications 19.01 91.12 35.29
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FDI and Exports
15 Sectors of Chinese Manufacturing: Shares of FDI and Exports in 2002
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PERCENT OF TOTAL FDI IN INDUSTRY
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Major changes in commodity composition of trade
• Shift of exports from primary pdts to mfgs
• Within mfg, move away from extreme dependence on labor-intensive pdts (Schott (2005), Brandt, Rawski and Sutton (2005)) and increase in higher value-added products
• Huge imports of capital goods, technology, and increasingly, intermediate goods
• Growing demand for import of rcs• 1/3 of crude oil• ½ of iron ore
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Composition of China’s Exports
Exports $US bn % $US bn % $US bn %
Food 2.63 12.46 9.92 6.67 17.52 4.00
Beverages and tobacco 0.04 0.19 1.37 0.92 1.02 0.23
Raw materials, excluding fuels 2.00 9.47 4.35 2.92 4.97 1.13
Mineral Fuels 6.60 31.26 5.34 3.59 11.13 2.54
Animal and vegetable oils 0.12 0.57 0.45 0.30 0.12 0.03
Chemicals products 0.83 3.93 9.06 6.09 19.36 4.42
Manufactured goods 2.93 13.88 32.89 22.11 69.83 15.93
Machinery and transport equip. 0.46 2.18 31.35 21.07 187.74 42.84
Miscellaneous mfg articles 2.33 11.04 53.66 36.07 125.56 28.65
Other 3.17 15.02 0.39 0.26 0.98 0.22
Total 21.11 100.00 148.78 100.00 438.23 100.00
1985 1995 2003
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Composition of China’s Imports
Imports $US bn % $US bn % $US %
Beverages and tobacco 0.19 0.66 0.39 0.30 0.49 0.12
Raw materials, excluding fuels
2.63 9.15 9.87 7.47 33.96 8.23
Mineral Fuels 0.16 0.56 5.17 3.91 29.45 7.13
Animal and vegetable oils 0.12 0.42 2.59 1.96 3.00 0.73
Chemicals products 2.04 7.10 17.17 13.00 48.25 11.69
Manufactured goods 8.06 28.05 29.06 22.00 64.03 15.51
Machinery and transport equip.
11.07 38.53 52.89 40.04 193.01 46.76
Misc mfg articles 0.86 2.99 7.95 6.02 33.33 8.07
Other 2.28 7.94 0.87 0.66 1.30 0.31
Total 28.73 100.00 132.08 100.00 412.76 100.00
1985 1995 2003
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Key factors underlying these trends
Productivity increaseIncreasing capabilities
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Changing composition of China’s exports
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0
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Years Since Start of Growth Spurt
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Initi
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100
China
Taiwan
Kor ea
Japan
China Index 700 f or 2002?
China labor data too high af ter 1997
Chinese output gr owth over stated, esp. 1997-2001
Asian Growth Spurts: Growth of Secondary-sector Value-added Per Worker Over 25 Years
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Composition of US Trade Deficit
1990 1995 2000 2003
US Total Imports 516.95 770.82 1217.93 1305.09
Total, Asia 190.93 305.54 424.19 443.68
Asia, % of Total 36.93 39.64 34.83 34.00
US Total Exports 374.54 546.44 781.83 723.61Total, Asia 100.15 164.18 194.49 179.45
Asia, % of Total 26.74 30.05 24.88 24.80
Deficit w/ Asia (% of total) 63.80 63.00 52.70 45.40Deficit w/ China (% of total) 8.10 16.40 19.20 23.20